Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - KEMET CORP | fy2017_q1xex991xearningsre.htm |
| 8-K - 8-K - KEMET CORP | fy2017_q1x8kxearningsrelea.htm |
Earnings Conference Call
July 28, 2016
Quarter Ended June 30, 2016
Cautionary Statement
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about
KEMET Corporation's (the "Company") financial condition and results of operations that are based on management's current
expectations, estimates and projections about the markets in which the Company operates, as well as management's beliefs and
assumptions. Words such as "expects," "anticipates," "believes," "estimates," variations of such words and other similar expressions are
intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no
obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking
statements include, but are not necessarily limited to the following: (i) adverse economic conditions could impact our ability to realize
operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to
operate; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our
liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or
goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes
in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries;
(vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in
completing the restructuring plans; (ix) equity method investment in NEC TOKIN exposes us to a variety of risks; (x) acquisitions and
other strategic transactions expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated
results; (xii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and
retain effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and offset
potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and regulations that
apply to our business, including those relating to environmental matters; (xvii) the impact of international laws relating to trade, export
controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) the need to
reduce the total costs of our products to remain competitive; (xx) potential limitation on the use of net operating losses to offset possible
future taxable income; (xxi) restrictions in our debt agreements that limit our flexibility in operating our business; (xxii) failure of our
information technology systems to function properly or our failure to control unauthorized access to our systems may cause business
disruptions; (xxiii) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder
who could seek to influence our corporate decisions; and (xxiv) fluctuation in distributor sales could adversely affect our results of
operations.
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Income Statement Highlights
U.S. GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Jun 2016 Mar 2016 Jun 2015
Net sales $ 184,935 $ 183,926 $ 187,590
Gross margin $ 42,523 $ 42,013 $ 39,713
Gross margin as a percentage of net sales 23.0 % 22.8 % 21.2 %
Selling, general and administrative $ 25,914 $ 25,790 $ 30,430
SG&A as a percentage of net sales 14.0 % 14.0 % 16.2 %
Operating income (loss) $ 8,898 $ 8,603 $ 1,243
Net income (loss) $ (12,205 ) $ (15,173 ) $ (37,050 )
Per Basic and Diluted Share Data:
Net income (loss) per basic and diluted share $ (0.26 ) $ (0.33 ) $ (0.81 )
Weighted avg. shares - basic 46,349 46,160 45,552
Weighted avg. shares - diluted 46,349 46,160 45,552
Financial Trends
Net Sales & Gross Margin % (Unaudited)
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Net Income (Loss) Excluding NEC TOKIN Option
Non-GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net income (loss) $ (12,205 ) $ (15,173 ) $ (37,050 )
Adjustment:
Change in value of NEC TOKIN option 12,000 — 29,200
Net income (loss) excluding change in value
of NEC TOKIN option $ (205 ) $ (15,173 ) $ (7,850 )
Net income (loss) excluding change in value of NEC TOKIN
option per basic and diluted share $ — $ (0.33 ) $ (0.17 )
Weighted avg. shares - basic 46,349 46,160 45,552
Weighted avg. shares - diluted 46,349 46,160 45,552
Supplemental Information:
Equity (income) loss from NEC TOKIN $ (223 ) $ 11,648 $ (1,585 )
Income Statement Highlights
Non-GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Jun 2016 Mar 2016 Jun 2015
Net sales $ 184,935 $ 183,926 $ 187,590
Adjusted gross margin $ 43,215 $ 42,751 $ 40,321
Adjusted gross margin as a percentage of net sales 23.4 % 23.2 % 21.5 %
Adjusted selling, general and administrative $ 21,980 $ 23,499 $ 23,964
Adjusted SG&A as a percentage of net sales 11.9 % 12.8 % 12.8 %
Adjusted operating income (loss) $ 14,362 $ 12,907 $ 10,106
Adjusted net income (loss) $ 3,306 $ 1,812 $ 660
Adjusted EBITDA $ 24,272 $ 23,042 $ 20,156
Per share data:
Adjusted net income (loss) - basic $ 0.07 $ 0.04 $ 0.01
Adjusted net income (loss) - diluted $ 0.06 $ 0.04 $ 0.01
Weighted avg. shares - basic 46,349 46,160 45,552
Weighted avg. shares - diluted 52,097 50,056 52,276
Financial Highlights
(Unaudited)
(1) Calculated as accounts receivable, net, plus inventories, net, less accounts payable.
(2) Current quarter's accounts receivable divided by annualized current quarter’s Net sales multiplied
by 365.
(3) Current quarter's accounts payable divided by annualized current quarter's cost of goods sold
multiplied by 365.
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(Amounts in millions, except DSO and DPO) Jun 2016 Mar 2016 FX Impact
Cash, cash equivalents $ 52.9 $ 65.0 $ (0.4 )
Capital expenditures $ 6.2 $ 6.3
Short-term debt $ — $ 2.0
Long-term debt 386.9 386.9
Debt premium and issuance costs (0.9 ) (1.1 )
Total debt $ 386.0 $ 387.8 $ —
Equity $ 88.4 $ 112.5 $ 6.4
Net working capital (1) $ 190.2 $ 191.1 $ (1.1 )
Days in receivables (DSO)(2) 44 46
Days in payables (DPO)(3) 43 46
Financial Trends
Cash and Cash Equivalents (Unaudited)
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(in millions)
Cost Rationalization Drives Margin Improvement
U.S. GAAP (Unaudited)
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Cost Rationalization Drives Margin Improvement
Non-GAAP (Unaudited)
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Gross Margin & Operating Income (Loss) - U.S. GAAP
Solid Capacitors (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 141,944 $ 140,042 $ 139,677
Gross margin 40,945 40,811 35,877
Gross margin as a percentage of net sales 28.8 % 29.1 % 25.7 %
Operating income (loss) $ 35,079 $ 34,538 $ 30,033
Adjusted Gross Margin & Operating Income (Loss) - Non-GAAP
Solid Capacitors (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 141,944 $ 140,042 $ 139,677
Adjusted gross margin 41,209 40,992 36,273
Adjusted gross margin as a percentage of net sales 29.0 % 29.3 % 26.0 %
Adjusted operating income (loss) $ 35,571 $ 35,586 $ 30,842
Gross Margin & Operating Income (Loss) - U.S. GAAP
Film & Electrolytics (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 42,991 $ 43,884 $ 47,913
Gross margin 1,578 1,202 3,836
Gross margin as a percentage of net sales 3.7 % 2.7 % 8.0 %
Operating income (loss) $ (1,467 ) $ (1,230 ) $ 712
Adjusted Gross Margin & Operating Income (Loss) - Non-GAAP
Film & Electrolytics (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 42,991 $ 43,884 $ 47,913
Adjusted gross margin 2,005 1,759 4,047
Adjusted gross margin as a percentage of net sales 4.7 % 4.0 % 8.4 %
Adjusted operating income (loss) $ (491 ) $ (440 ) $ 1,968
Sales Summary - Q1 FY2017
(Unaudited)
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Appendix
Adjusted Gross Margin
Non-GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands, except percentages) Jun 2016 Mar 2016 Jun 2015
Net Sales $ 184,935 $ 183,926 $ 187,590
Gross Margin (U.S. GAAP) $ 42,523 $ 42,013 $ 39,713
Gross margin as a percentage of net sales 23.0 % 22.8 % 21.2 %
Adjustments:
Plant start-up costs 308 319 195
Stock-based compensation expense 384 278 413
Plant shut-down costs — 141 —
Adjusted Gross margin (non-GAAP) $ 43,215 $ 42,751 $ 40,321
Adjusted gross margin as a percentage of net sales 23.4 % 23.2 % 21.5 %
Adjusted Selling, General & Administrative Expenses
Non-GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands, except percentages) Jun 2016 Mar 2016 Jun 2015
Net sales $ 184,935 $ 183,926 $ 187,590
Selling, general and administrative expenses (U.S. GAAP) $ 25,914 $ 25,790 $ 30,430
Selling, general, and administrative as a percentage of net sales 14.0 % 14.0 % 16.2 %
Less adjustments:
ERP integration/IT transition costs 1,768 859 4,369
Legal expenses related to antitrust class actions 1,175 482 718
NEC TOKIN investment-related expenses 206 265 224
Stock-based compensation expense 785 685 843
Pension plan adjustment — — 312
Adjusted selling, general and administrative expenses
(non-GAAP) $ 21,980 $ 23,499 $ 23,964
Adjusted selling, general, and administrative as a percentage of net sales 11.9 % 12.8 % 12.8 %
Adjusted Operating Income (Loss)
Non-GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Operating income (loss) (U.S. GAAP) $ 8,898 $ 8,603 $ 1,243
Adjustments:
Restructuring charges 688 617 1,824
Stock-based compensation expense 1,228 1,013 1,279
ERP integration/IT transition costs 1,768 859 4,369
Legal expenses related to antitrust class actions 1,175 482 718
Plant start-up costs 308 319 195
Plant shut-down costs — 141 —
NEC TOKIN investment-related expenses 206 265 224
Pension plan adjustment — — 312
Net (gain) loss on sales and disposals of assets 91 608 (58 )
Adjusted operating income (loss) (non-GAAP) $ 14,362 $ 12,907 $ 10,106
Adjusted Net Income (Loss)
Non-GAAP (Unaudited)
For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net income (loss) (U.S. GAAP) $ (12,205 ) $ (15,173 ) $ (37,050 )
Adjustments:
Restructuring charges 688 617 1,824
Equity (income) loss from NEC TOKIN (223 ) 11,648 (1,585 )
Net (gain) loss on sales and disposals of assets 91 608 (58 )
Stock-based compensation expense 1,228 1,013 1,279
Legal expenses related to antitrust class actions 1,175 482 718
ERP integration/IT transition costs 1,768 859 4,369
Change in value of NEC TOKIN option 12,000 — 29,200
Plant start-up costs 308 319 195
Plant shut-down costs — 141 —
Net foreign exchange (gain) loss (1,920 ) 122 1,049
NEC TOKIN investment-related expenses 206 265 224
Pension plan adjustment — — 312
Amortization included in interest expense 190 210 220
Income tax effect of pension curtailment — 155 —
Income tax effect of non-GAAP adjustments (1) — 546 (37 )
Adjusted net income (loss) (non-GAAP) $ 3,306 $ 1,812 $ 660
Adjusted net income (loss) per share - basic $ 0.07 $ 0.04 $ 0.01
Adjusted net income (loss) per share - diluted $ 0.06 $ 0.04 $ 0.01
Weighted avg. shares - basic 46,349 46,160 45,552
Weighted avg. shares - diluted 52,097 50,056 52,276
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(1) The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering
the deferred tax valuation for each applicable jurisdiction.
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net income (loss) (U.S. GAAP) $ (12,205 ) $ (15,173 ) $ (37,050 )
Interest expense, net 9,920 9,925 10,010
Income tax expense (benefit) 1,800 2,056 (248 )
Depreciation and amortization 9,436 10,160 9,917
EBITDA (non-GAAP) 8,951 6,968 (17,371 )
Excluding the following items:
Restructuring charges 688 617 1,824
Legal expenses related to antitrust class actions 1,175 482 718
Equity (income) loss from NEC TOKIN (223 ) 11,648 (1,585 )
Net (gain) loss on sales and disposals of assets 91 608 (58 )
Stock-based compensation expense 1,228 1,013 1,279
ERP integration/IT transition costs 1,768 859 4,369
Change in value of NEC TOKIN option 12,000 — 29,200
Plant start-up costs 308 319 195
Plant shut-down costs — 141 —
Net foreign exchange (gain) loss (1,920 ) 122 1,049
NEC TOKIN investment-related expenses 206 265 224
Pension plan adjustment — — 312
Adjusted EBITDA (non-GAAP) $ 24,272 $ 23,042 $ 20,156
Adjusted Gross Margin - Non-GAAP
Solid Capacitors (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 141,944 $ 140,042 $ 139,677
Gross margin (U.S. GAAP) 40,945 40,811 35,877
Gross margin as a percentage of net sales 28.8 % 29.1 % 25.7 %
Adjustments:
Stock-based compensation expense 264 181 359
Plant start-up costs — — 37
Adjusted gross margin (non-GAAP) $ 41,209 $ 40,992 $ 36,273
Adjusted gross margin as a percentage of net sales 29.0 % 29.3 % 26.0 %
Adjusted Gross Margin - Non-GAAP
Film & Electrolytics (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 42,991 $ 43,884 $ 47,913
Gross margin (U.S. GAAP) 1,578 1,202 3,836
Gross margin as a percentage of net sales 3.7 % 2.7 % 8.0 %
Adjustments:
Stock-based compensation expense 119 97 54
Plant start-up costs 308 319 157
Plant shut-down costs — 141 —
Adjusted gross margin (non-GAAP) $ 2,005 $ 1,759 $ 4,047
Adjusted gross margin as a percentage of net sales 4.7 % 4.0 % 8.4 %
Adjusted Operating Income (Loss) - Non-GAAP
Solid Capacitors (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 141,944 $ 140,042 $ 139,677
Operating income (loss) (U.S. GAAP) 35,079 34,538 30,033
Adjustments:
Restructuring charges 136 360 232
Stock-based compensation expense 264 181 359
Plant start-up costs — — 37
NEC TOKIN investment-related expenses — — 1
(Gain) loss on sales and disposals of assets 92 507 180
Adjusted operating income (loss) (non-GAAP) $ 35,571 $ 35,586 $ 30,842
Adjusted Operating Income (Loss) - Non-GAAP
Film & Electrolytics (Unaudited)
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For the Quarters Ended
(Amounts in thousands) Jun 2016 Mar 2016 Jun 2015
Net sales $ 42,991 $ 43,884 $ 47,913
Operating income (loss) (U.S. GAAP) (1,467 ) (1,230 ) 712
Adjustments:
Restructuring charges 549 190 1,286
Stock-based compensation expense 119 97 54
Plant start-up costs 308 319 157
Plant shut-down costs — 141 —
(Gain) loss on sales and disposals of assets — 43 (241 )
Adjusted operating income (loss) (non-GAAP) $ (491 ) $ (440 ) $ 1,968
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
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Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
27
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Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
29
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
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Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
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Non-GAAP Financial Measures
Non-GAAP Financial Measures
Included in this presentation are certain non-GAAP financial measures designed to complement the financial information presented
in accordance with generally accepted accounting principles in the United States of America because management believes such
measures are useful to investors for the reasons described below.
Adjusted gross margin
Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative
reconciliation provided earlier in this presentation. Management uses Adjusted gross margin to facilitate our analysis and
understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided earlier in this
presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends
in ongoing operations. The Company believes that Adjusted gross margin is useful to investors because it provides a supplemental
way to understand the underlying operating performance of the Company. Adjusted gross margin should not be considered as an
alternative to gross margin or any other performance measure derived in accordance with GAAP.
Adjusted selling, general and administrative expenses
Adjusted selling, general and administrative expenses represents selling, general and administrative expenses excluding
adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted
selling, general and administrative expenses to facilitate our analysis and understanding of our business operations by excluding
the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make comparisons of
our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that
Adjusted selling, general and administrative expenses is useful to investors because it provides a supplemental way to understand
the underlying operating performance of the Company. Adjusted selling, general and administrative expenses should not be
considered as an alternative to selling, general and administrative expenses or any other performance measure derived in
accordance with GAAP.
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Non-GAAP Financial Measures
Continued
Adjusted operating income (loss)
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative
reconciliation provided earlier in this presentation. Management uses Adjusted operating income to facilitate our analysis and
understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided earlier in this
presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends
in ongoing operations. The Company believes that Adjusted operating income is useful to investors to provide a supplemental way
to understand the underlying operating performance of the Company and monitor and understand changes in our ability to generate
income from ongoing business operations. Adjusted operating income should not be considered as an alternative to operating loss
or any other performance measure derived in accordance with GAAP.
Adjusted net income (loss) and Adjusted EPS
Adjusted net income (loss) and Adjusted EPS represent net income (loss) and EPS, excluding adjustments which are more
specifically outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted net income
(loss) and Adjusted EPS to evaluate the Company's operating performance by excluding the items outlined in the quantitative
reconciliation provided earlier in this presentation which might otherwise make comparisons of our ongoing business with prior
periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted net income (loss) and
Adjusted EPS are useful to investors because they provide a supplemental way to understand the underlying operating
performance of the Company and allows investors to monitor and understand changes in our ability to generate income from
ongoing business operations. Adjusted net income (loss) and Adjusted EPS should not be considered as alternatives to net
income, operating income or any other performance measures derived in accordance with GAAP.
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Non-GAAP Financial Measures
Continued
Adjusted EBITDA
Adjusted EBITDA represents net loss before income tax expense (benefit), interest expense, net, and depreciation and amortization
expense, excluding adjustments which are more specifically outlined in the quantitative reconciliation provided earlier in this
presentation. We present Adjusted EBITDA as a supplemental measure of our performance and ability to service debt. We also
present Adjusted EBITDA because we believe such measure is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because cash expenditures on
interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense
goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other items excluded
from Adjusted EBITDA are excluded in order to better reflect our continuing operations.
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this
presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be
unaffected by these types of adjustments. Adjusted EBITDA is not a measurement of our financial performance under GAAP and
should not be considered as an alternative to net income, operating income or any other performance measures derived in
accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
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Non-GAAP Financial Measures
Continued
Our Adjusted EBITDA measure has limitations as an analytical tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
• it does not reflect changes in, or cash requirements for, our working capital needs;
• it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal
payment on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often
have to be replaced in the future, and our Adjusted EBITDA measure does not reflect any cash requirements for such
replacements;
• it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
• it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our
ongoing operations;
• it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
• other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a
comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash
available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our
obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted
EBITDA only supplementally.
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